INDIA UNION BUDGET 2020 - 21 - Home | Dhruva Advisors · 2020-02-07 · INDIA UNION BUDGET . 2020 - 21. Key Policy Announcements. IFSC • International Bullion exchange to be set

INDIA UNION BUDGET 2020 - 21

Supporting Partners

Policy level announcements

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Integrating “Assemble in India” into “Make in India”

Eliminating policies that undermine markets through government intervention

Efficiently scaling up the banking sector proportionate to the size of Indian economy

Using privatisation to foster efficiency

Macro-Economic Picture

• GDP growth during FY 2019-20 estimated at 5%

• GDP growth for FY 2020-21 expected in range of 6%-6.5%

• Fiscal deficit for FY 2019-20 at 3.8% (against BE of 3.3%), FY 2020-21 at 3.5% (against FRBM target of 3%)

Four pillars of wealth creation

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Macro-Economic Picture

Improving market liquidity • PSU Banks to raise further capital via the primary market route

• Limit for FPI investment in corporate bonds to be increased from 9% to 15%

• Specified categories of government securities would be opened for NR investors

• Benefit of debt recovery under SARFAESI Act now proposed to be madeavailable to NBFCs with:

⎼ Asset size of INR 1 billion (reduced from INR 5 billion)

⎼ Loan size of INR 5 million (reduced from INR 10 million)

• NBFCs to be allowed to extend invoice financing to MSMEs to enhance MSMEs’economic and financial stability

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Key Policy Announcements

Covering deficit• Government to divest part of its holding in LIC by way of IPO

• Government to sell the balance stake in IDBI Bank through stock exchange

Taxpayer’s Charter & softening of penal consequences• Taxpayer’s Charter (enumerating taxpayers’ rights) enshrined in the Statute

• Legislations to be amended to address the issue of criminal liability for civiloffences

Direct tax reforms• While DTC Task Force Report not released, several recommendations

incorporated in Budget proposals

⎼ Lowering corporate tax rates, DDT abolition, tightening of individual taxresidency norms

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Key Policy Announcements

IFSC• International Bullion exchange to be set up in GIFT IFSC

Other announcements• Proposal to permit ECB and FDI in education sector

• Proposal to set up an Investment Clearance Cell that will provide “end to end”facilitation and support⎼ Including pre-investment advisory, information related to land banks and

facilitate clearances at Centre and State level

• National Logistics Policy proposed to be launched to create a single window e-logistics market and employment generation

• National Mission on quantum technologies and applications with an outlay of INR80 billion proposed

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Top 5 Economies of World

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USA 21.4

India 2.9

Japan5.2

China14.1

Germany3.9

All figures in US$ Trillion


Key Asian Economy Tax Rates

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Thailand 20%

Japan 23.2%

Bangladesh 25%

India15/22%

China 25%

Indonesia 25%

Key Direct Tax Proposals

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Tax on Dividends

• DDT (@ 20.56%) on domestic company dividends abolished

• Tax rate (including surcharge and cess) for non-residents on dividend income:

• Non-residents can avail treaty rates (5% to 15% - without any surcharge/cess)depending on eligibility on the dividend received from companies; India SG treatyprovides for tax rate as under:⎼ 10% tax where a corporate holds atleast 25% shares in an Indian Co⎼ 15% in all other cases

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FPI (Corporate /

Firms & LLPs)

FPI(AJP / BOI /

Trust / Individual)

Foreign Company

Foreign Individual / NRI (non foreign

currency investments)

NRI (foreign currency

Investments)

21.84% 28.5% 21.84% 28.5%

WHT rate higher than applicable tax rate under the draft law – likely to be resolved before enactment


Tax on Dividends - Residents

• Dividends taxable in the hands of recipient at the normal applicable rates

⎼ Significant impact for resident individual

• No deduction of expenses except interest to the extent of 20% of dividend income

• Cascading effect eliminated on receipt of dividend by one domestic company fromanother domestic company

⎼ Companies which have opted for lower tax regime under section 115BAA / 115BAB also entitled to claim deduction

⎼ However, no such relief of cascading tax on dividend received from foreign companies (generally taxed at 15%)

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Tax Residency conditions

Tightening of Residence rules• A citizen of India not taxable in any country on account of residence / domicile etc

will be deemed as resident of India• Clarification issued by CBDT stating that –

⎼ new provision not intended to tax those Indian citizens who are bona fideworkers

⎼ such deemed resident would only be liable to tax on income derived fromIndian business or profession

• Residency threshold for NRI/ PIOs inter-alia on an India visit reduced from 182days to 120 days

• Impact of an individual being regarded as a tax resident of India: few examples –‒ Global income taxable‒ Long-term capital gains on sale of shares of an unlisted Indian company –

taxable @ 20% instead of 10%• Criteria of determining NOR in India modified as under:

⎼ Individual – who is NR in 7 out of 10 preceding years⎼ NOR is taxable in India only on income sourced or received in India

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Tax incentives

Electricity companies• Beneficial corporate tax rate of 17.16% extended to domestic companies engaged

in generation of electricity

Real estate• Safe harbour limit (variation vis-à-vis prescribed stamp duty value) for sale of

immovable property increased from 5% to 10%

• Tax incentives for affordable housing projects

⎼ Time limit for obtaining approval for such projects extended upto March 31,2021. Similar extension provided for first time buyers availing home loans forsuch projects

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International Tax

Deferment in SEP test• Significant Economic Presence (SEP) test for establishing business connection in

India deferred

⎼ Amended provisions to be effective from FY 2021-22

Business connection- income attribution clarified • Scope of income attributable to Indian operations expanded to include:

⎼ Income from advertisements targeted to Indian resident customers

⎼ Sale of data collected from Indian residents

⎼ Sale of goods and services using data collected from Indian residents

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Protection under tax treaties with narrower scope of taxation vis-à-vis the ‘business connection’ under domestic law?


International Tax

FPI Indirect transfer exemption• Category II FPIs as per new SEBI regulations (which were Category III FPIs in the

erstwhile regulations) excluded from existing exemption on Indirect transfers

⎼ Consequential amendment due to collapsing of Category III (which were noteligible before for the exemption) into Category II under securities law

• Investments held directly or indirectly by a non-resident in a Category II FPIsregistered under SEBI (FPI) Regulations 2014 prior to its repeal remain exemptfrom indirect transfer provisions

Safe harbour rules for fund management further relaxed• Minimum corpus to be INR 100 crores (~ SGD 20 million) now within twelve

months from establishment or incorporation

• Resident participation cap of 5% not to include fund manager contributions up toINR 25 crores (~ SGD 5 million), for a period of 3 years

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International Tax

Certainty measures for determining profits of PE• Coverage of safe harbour rules and APA agreements expanded to include profit

attribution to PE/ business connection

Clarification in section 90/90A• Section 90/90A amended to give effect to the language of Preamble modified by

MLI

Thin capitalization• Thin cap rules relaxed - not applicable to interest paid to a PE of a foreign

company engaged in banking business

Relaxation in income-tax return filing requirements (w.e.f. AY 2020-21)• No income-tax return required to be filed by non-residents/ foreign company only

deriving income by way of Royalty/ FTS from India and applicable taxes have beendischarged by way of TDS

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Incentives - Start ups

• Tax holiday available to an ‘eligible start-up’ in respect of profits from ‘eligiblebusiness’

• Eligible start-up means a company or an LLP engaged in eligible business whichfulfils the following conditions –

⎼ It is incorporated on or after 1 April 2016 but before 1 April 2021

⎼ Total turnover of its business does not exceed INR 25 crores (~ SGD 5 million)in the previous year relevant to the assessment year for which tax holiday isclaimed

⎼ Proposal in Budget 2020 to enhance the turnover limit from INR 25 crores toINR 100 crores (~ SGD 20 million)

⎼ It holds a certificate of eligible business from the Inter-Ministerial Board ofCertification

• Tax holiday available = 100% of profits for any 3 consecutive assessment years outof 7 years beginning from the year in which the eligible start-up is incorporated

⎼ Proposal in Budget 2020 to extend time period of 7 years to 10 years

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Budget proposals to increase the scope of claiming tax holiday by start-ups


Incentives - Start ups

• Currently, tax liability in case of ESOPs is as under –

⎼ Tax on perquisite as income from salary at the time of exercise of option

⎼ Tax on income from capital gain at the time of sale – amount taxed asperquisite available as cost of acquisition of shares at the time of computingcapital gains

• Current tax provisions lead to cash flow issues for employees – tax liability triggersat the time of exercise of options even if there is no transfer of security

• Budget 2020 proposes to amend the above provisions for employees of eligiblestart-ups*

• Eligible start-ups to deduct or pay taxes on perquisite income of its employees inrespect of ESOP on occurrence of earlier of the following within 14 days:

⎼ After expiry of 5 years from the end of financial year in shares are allotted

⎼ Date of sale of shares

⎼ From the date on which employee ceases to be an employee of such start-up

• Where employer fails to deduct tax – onus on the employee to comply and paytaxes as above

18*As defined under section 80-IAC of the Act and discussed in earlier slide


Incentives – Financial income

REIT and InvITs• Listing requirement omitted - for business trusts (REIT and InvITs) to be eligible to

pass through tax regime

• Dividend income received by investors from business trusts now taxable on passthrough basis

⎼ Business Trusts to deduct 10% withholding tax for residents and non-residents

ADIA and SWF• Dividend, interest and capital gains income earned by subsidiary of Abu Dhabi

Investment Authority and SWFs (satisfying specified criteria’s) not liable to tax

⎼ Investments to be made by 31 March 2024 in specified infrastructure facilitiesand to be notified businesses – locked in for three years

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Concessional rate on interest income - extended• Benefit of 5% rate on interest on ECBs and FPI investment in bonds extended to

2023;

⎼ Coverage extended to FPI investment in municipal debt securities

• Rate further reduced to 4% for long term bonds and rupee denominated bondsexclusively listed on IFSC

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Incentives – Financial income


Tax Compliance & Dispute ResolutionFaceless proceedings• Existing scheme of faceless assessment proceedings proposed to be extended to

penalty / CIT(A) proceedings

Reference to Dispute Resolution Panel (DRP):• Option to avail DRP appellate route extended to all non-residents

Stay of demand by Tribunal (ITAT)• ITAT may grant stay of demand upto 180 days only if tax payer deposit 20% of tax

(inclusive of interest / penalty etc) or it provides security of equal amount

• Extension of stay not possible beyond 365 days

Tax compliance measures• Tax audit limit raised from INR 1 crore to INR 5 crore where the receipts and

expenditure in cash <= 5% of the total receipts and expenditure

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Tax Compliance & Dispute Resolution

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Payment under Scheme For Disputed Tax Payable For disputed Penalty / Interest / Fees (other than wrt to disputed tax)

On or before March 31, 2020 Tax amount (no interest / penalty)

25% of penalty / interest / fee

After March 31, 2020 and on or before June 30, 2020

Tax + 10% (excess 10% shall be limited to the amount of related penalty and interest)

30 % of penalty / interest / fee

After June 30, 2020 Scheme not available

Vivad Se Vikash – New Dispute Resolution Scheme• Announced in Budget speech – not part of Finance Bill

• Scheme applicable in case of all appeals pending at any level

Others• Tax Payer’s Charter (enumerating tax payers’ rights) to be enshrined in the Statute

– to be notified

• Penalty applicable on recording of fake entries or omission to record an entry toevade tax to the extent of sum of such false / omitted entries


Procedural and Other Changes

Tax Collection at Source• Obligation on AD-Banks to collect TCS @ 5% / 10% (non-PAN/Aadhar holder) for

LRS remittance exceeding INR 7 lakhs in a financial year• Obligations on seller of an overseas tour program package to collect TCS @ 5% /

10% (for non-Pan/Aadhar cases)• Sale of goods in excess of INR 50 lakhs by a seller (whose turnover/gross receipts

exceeded INR 10 cr in previous FY) shall attract TCS @ 0.1% / 1% (non-PAN/Aadhar holder)

• TCS not applicable in case of remitter/buyer has deducted TDS under anyprovisions of the Act

Tax Deduction at Source• TDS rate under section 194J for provision of technical services (other than

professional services) have been reduced to 2% from the existing rate of 10%.⎼ TDS rate on other professional services covered under section 194J shall

continue to be 10%.• Amendment in the the definition of “work” under section 194C to provide that

contract manufacturing where the raw material is provided by the assessee or itsassociate (related party as per section 40A(2)(b)) shall fall within the purview of the‘work’ under section 194C

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TDS on e-commerce

• Introduction of TDS on domestic e-commerce transactions

• e-commerce operators required to deduct tax @ 1% at the time of payment/ credit

⎼ Higher rate of 5% applicable, where no PAN furnished by the e-commerceparticipant

• e-commerce participant defined to mean residents selling goods or providingservices through digital or e-commerce facility

⎼ Exemption for individuals or HUF recording gross amount of sales/ servicesless than equal to INR 5 lakhs and furnishes PAN or Aadhar

• No TDS obligations under other section if transaction covered by these provisions

⎼ TDS on payments to continue to apply on payments made to e-commerceoperators for hosting advertisements or providing unrelated services

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Questions

Contact UsDinesh Kanabar (Mumbai)Chief Executive Officer [email protected]

Mahip Gupta (Singapore)[email protected]

Vishal Gada (Mumbai)[email protected]

Ajay Rotti (Bengaluru)[email protected]

Krishan Malhotra (Delhi / NCR)[email protected]

K. Venkatachalam (Pune)[email protected]

Aditya Hans (Kolkata)[email protected]

Nilesh Ashar (Dubai)[email protected]

Disclaimer:The information and analysis contained herein is intended to provide general guidance. The advice of an expert should be obtained based on individual circumstances

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INDIA UNION BUDGET 2020 - 21 - Home | Dhruva Advisors · 2020-02-07 · INDIA UNION BUDGET . 2020 - 21. Key Policy Announcements. IFSC • International Bullion exchange to be set